Builders group trial under way

A long-simmering legal challenge to the Building Industry Association of Washington got under way Monday in Thurston County in a civil trial that could answer whether builders ever "skimmed" interest from a trust.

The money in question belongs to contractors enrolled in an industrial insurance rebate program managed by the BIAW, whose lawyers deny the allegations of skimming and say the charges are politically motivated.

In opening statements, Andrew Friedman of the plaintiffs’ legal team said, “This case is about fixing some seriously flawed trust practices.” He said the trust was mismanaged and needs to be managed separately from the BIAW.

Another plaintiff attorney, Knoll Lowney, said the suit could lead to BIAW repaying thousands of builders as much as $1.3 million for pocketing interest on refund money from the state Department of Labor and Industries that was held a few days before putting it into a formal trust.

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But defendants’ lawyer Harry Korrell countered in the opening of the Superior Court bench trial before Judge Carol Murphy that the lawsuit, which is on behalf of five participants in the insurance rebate program, is actually a “hostile takeover” of the BIAW’s “Retro” program and its governing board.

The program in question sends insurance rebates to contractors that have better safety records than the norm. Both the BIAW and local homebuilder associations receive a 10 percent share of rebates – what they described as a marketing fee that also is used to bolster safety programs for members.

Any real damages, if the BIAW is found in error, amount to just $300 for the five-year span of the legal claims by five plaintiffs, Korrell said.

The trial is expected to run at least through Thursday and likely into next week.

The issues are highly technical but tied to the inner workings of the ROII, or “Retro,” program that provided income to the BIAW and its high profile campaign activities – including several million it spent in support of Dino Rossi’s 2004 and 2008 campaigns for governor and select Supreme Court races.

The lawyers include Michael Withey and Lowney on the side of five plaintiffs, including Whatcom County-based RE Sources for Sustainable Communities. The plaintiffs had enrolled in the retro program but apparently didn’t realize that the BIAW and its local affiliate homebuilder associations were spending profits or proceeds on politics.

Withey and Lowney were involved in putting Rossi under oath during depositions late in the 2008 governor’s race in a lawsuit that alleged an illegal conspiracy to create a campaign fund benefiting Rossi.

On the other side is a legal team led by Korrell and Rob Maguire, who were major players in the 2004 election challenge that played out in a Wenatchee courtroom.

Rossi is not tied directly to the new case and is running for U.S. Senate against Democratic incumbent Patty Murray.

In an Aug. 6 ruling, Judge Murphy found that the BIAW was on solid ground in collecting the 20 percent fee split 50-50 with local builder associations for handling “Retro” claims. But she also found that BIAW’s Member Services Corp. had breached its trust duties by failing to notify individual builder-members with an annual statement of the trust’s accounts.

She also had concluded that interest in inbound funds from L&I belonged to the trust but left for trial the earnings on outbound money sent to the trust. She also found there was no accounting for the interest earnings until she ordered one done.

Murphy also ruled that “the ultimate issue for each alleged breach of duty is whether the defendants exercised good faith and honest judgment.” But she rejected the BIAW’s contention that keeping the interest was “a wash” because the association did not charge an administrative fee to the trust for its role.

In his opening statement, plaintiffs’ lawyer Friedman said the BIAW failed to turn over interest it earned on member rebates. And he questioned the fiduciary ability of BIAW’s Member Services Corp. subsidiary, explaining that its trust held as much as $50 million in rebated money in a money market account at a small bank for which the FDIC insured only $100,000.

Korrell said the case is politically motivated by people who want to silence the BIAW’s political activities. He didn’t say it, but Lowney and Withey have ties to Democrats.